Inheritance Tax: Britain’s “Not‑So‑Friendly” Extra Charge Could Get Even Tougher?
Don’t miss the bottom line: The Chancellor, Rachel Reeves, is eyeing a new set of rules that could make the already‑disliked inheritance tax even more painful for ordinary folks.
Why People Hate It (and Why the Treasury Loves It)
Money in the bank is suddenly getting a heavy tax bill, and not just a touch: an extra £1 billion a year could be on the way, according to Nigel Green, chief executive of the worldwide financial advisory firm deVere Group.
Why the fuss? “Inheritance tax feels like a double‑handed gavel on assets that people have already taxed, saved, and worked hard for,” Green says. “With the Treasury under pressure, it looks as if IHT will again be on the front burner.”
What the Numbers Tell Us
- In the first 12 months to June 2025, £7.5 billion hit the Treasury from IHT – bigger than the £6.7 billion collected in 2022/23.
- This is more than twice the amount gathered a decade ago.
How the Rules Work – and How They Might Change
Current wrap‑ups:
- Gifts given more than seven years before a death usually escape IHT.
- Gifts from three to seven years out are taxed on a sliding scale – the closer they’re made to death, the higher the charge.
But the Treasury might review and tighten these provisions. They’re also eyeing the Residence Nil Rate Band, which was originally designed to help keep family homes in play.
Who Really Gets the Tax? Not Just the Ultra‑Wealthy
Remember when people thought only the rich got the tax? Not anymore. Rising house prices, freeze‑on‑threshholds, and the erosion of reliefs mean ordinary families in pricey regions are feeling the sting.
“If the rules get tighter, thousands more will see their estates cross the IHT line,” Green warns.
Labour’s “Stability Rule” – No Rate Cut, Just Structure Change
Labour promises not to hike headline rates for working people. But the Treasury still counts anyone with a payslip as “working.” This gives policymakers leeway to tweak the structure of inheritance tax without shouting “rate hike” to the public.
“Altering the tax’s backbone is politically cleaner than pushing headline taxes higher,” says Green. However, he adds, the consequences for those who’ve painstakingly built their fortunes will be “significant.”
Frozen Allowances: The Silent Tax Increase
- Since 2009, the £325,000 nil‑rate band has stuck at its old value, pulling more estates into tax territory as asset prices climb.
- Any direct changes to these thresholds or reliefs would trigger a faster rise in IHT receipts.
Green’s take: “The next door in the tax room will probably see the door open; we may see lowered allowances, tighter reliefs, or more stringent gifting rules. It’s probably not a good idea.”
Conclusion – The IHT Lever Gets Louder
Unlike other taxes, inheritance tax is a hidden way to raise revenue without screaming “new tax rates.”
With the chest of potential changes blowing, the tax is expanding its reach and will likely become a key lifeline for future budgets.
Is the future of estate planning that dark? Stay tuned, keep an eye on your paperwork, and always remember: tax laws change faster than Wi‑Fi!
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